First time buyers hit the headlines

Before June's EU referendum, much was made by the great and good of our political system about the impact that a vote for Brexit would have on UK house prices. The so-called "Remain" lobby insisted there was a real risk that the residential property market could face a significant and sustained decline in the event that the country opted to leave the EU. Counterparts in the "Leave" campaign expressed serious doubts that this would happen, arguing that the British housing market was more than capable of withstanding an exit from Europe and that, in any event, a fall in the cost of housing would actually be a boon to first time buyers (FTBs) who are so often excluded from home ownership by the prohibitively high prices of houses and flats.

In truth, the post-Brexit housing statistics have been contradictory, with some mortgage lenders, for instance, finding that prices have fallen slightly, while others have reported narrow gains. Housing analysts have been characteristically, and understandably, reticent about making predictions on the basis of the statistics that have emerged in the past couple of months. However, there is a sense that, outside of prime London real estate, prices are largely holding their own. This being the case, what is the prognosis for FTBs? In this piece, we look at some of the latest property news affecting those hoping to buy their own home sooner rather than later.

Help-To-Buy ISA scheme

A number of criticisms of the Government's flagship Help-to-Buy ISA scheme have emerged in recent weeks. The Daily Telegraph, for example, has broken a couple of stories about the limited number of FTBs who can partake in the scheme. Several media sources have discussed a controversial clause in the legislation setting up the scheme, which would seem to prescribe that the governmental contribution can only be used on completion of a house purchase rather than for a deposit. On the face of it, of course, this runs counter to what the then Chancellor of the Exchequer, George Osborne, intended when he first announced the initiative.

The Government, though, appears to have responded to industry discontent, with HM Treasury saying that savers using a Help to Buy ISA will be permitted, from April 2017, to move their savings into a new Lifetime Isa, from where they will be able to use the bonuses to put towards a house deposit, required at exchange of contracts when purchasing a property. Critics have broadly welcomed the move, saying that it was a positive step forwards. However, they claim it doesn't entirely solve the problem, and the Treasury should urgently consider amendments to the original Help to Buy ISA regulations, for the benefit of the half a million savers who have so far subscribed. Savers cannot, for instance, access money deposited in Lifetime ISAs for at least a year after they open the account. This means that savers cannot use the bonuses towards property purchase deposits for at least another 18 months. They will also have to deal with the significant inconvenience of switching their accounts. That said, the policy adjustment does seem to indicate a genuine will in central government to help aspiring homeowners, and it seems entirely possible that there will be further concessions in the months to come. We will be monitoring this story closely.

Interest rates

Even before the Bank of England (BoE) cut interest rates to 0.25 per cent, a number of banks had made headlines in the financial pages, by cutting the rates payable on their Help-to-Buy ISA products. Halifax, for instance, cut its rate from 4 per cent to 2.5 per cent back in May. The bank has responded to the BoE move by slashing the rate again, this time to 2 per cent. Other financial institutions like Santander have followed suit. This is, of course, desperately disappointing to FTBs. The latter may have hoped that there would be some consolation in interest rates being cut on loan products, like mortgages, but, to date, banks have been reluctant to pass the BoE's cut on to customers. In a sense, then, FTBs are facing something of a double whammy of bad news. It is to be hoped that competition among lenders will encourage them to develop some mortgage products that are more accessible to young people. It is also important to note that, even at the reduced rates of interest, Help-to-Buy ISAs generally yield more than many other savings products, so they remain a worthwhile option for FTBs who are trying to build a deposit.


FTBs face house price hike

It is reported across the media that, irrespective of any wider Brexit wobble, FTBs have actually faced a sharp increase in property prices recently. Latest figures suggest that the average asking price for a property with two or fewer bedrooms - the sort of residence typically sought by FTBs - surged by some 3.3 per cent in September. By way of contrast, the annual average price growth of all types of homes across the UK is around 4 per cent. Smaller homes for FTBs increased in price by a startling 10.5 per cent in the past year. The reasons for the price hike are rather complex and analysts have offered varying explanations. Interestingly, however, a key factor being cited is the stamp duty surcharge on buy-to-let properties which came into effect in April this year. Commentators argue that this caused a rush among investors to boost their portfolios before the new regime kicked in. This, in turn, has caused a "crunch" in the supply of smaller homes and pushed prices upwards. If this analysis is true, it would be a huge blow to housing policy-makers who originally intended the stamp duty measure to reduce the incentives for property investors to snap up starter homes, and ultimately to allow more FTBs to purchase them.

Full coverage of this story can be found at: https://www.theguardian.com/business/2016/sep/19/uk-first-time-buyers-hit-by-steeper-rises-in-starter-home-prices.